Appraisal and review of the impact of the Lagos Plan of Action on the development and expansion of intra-African trade

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7 UNITED NATIONS

ECONOMIC AND SOCIAL COUNCIL

Distr.

LIMITED

E/ECA/TRADE/91/6 3 March 1991

Originals ENGLISH

ECONOMIC COMMISSION FOR AFRICA

Eleventh meetina of the Conference

of African .Ministers of Trade Ababa, Ethiopia

15 to 19 April 1991

Appraisal ana Review of the Impact of the Lacfos Plan of Action on the Development and Expansion

of Intra-African Trade

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Table of Contents

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I. INTRODUCTION 1

II. Developments of Domestic Trade 2

III. Developments in Intra-African Trade Section 5

(a) Analysis of the situation of intra-

African trade and its trade potential 6

(b) Reduction and elimination of

trade barriers 8

IV. Conclusions and Recommendations 11

Statistical Annex Tables 1 to 5 i-vii

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E/ECA/TRADE/91/6

I. INTRODUCTION

1. The Lagos Plan of Action (LPA) together with the Final Act of Lagos (FAD were borne out of an overwhelming necessity to establish an African social and economic order primarily based on utilising to the full the region 's

resources in building a self-reliant economy. The other

parallel objective was the ^establishing of an African Econonnio Community by the'- fcecrinn-in«?" o:f the twenty first

century.

2. In adopti na the LPA ar^ the FAL it was recognised

that national governments were to be responsible for

imoleinentirtcr these strategies in their respective development nlansB However, reaional bodies like the Economic Commission for Africa (KCA) the Organisation

of African Unity (OAU) and others would have this task of. giving technical assistance to member States. From

information research in writing this brief paper it is

safer to state that very few government s have striven

to incorporate in their development planning exercise?

the objectives enunciated in the Lagos Flan of Action.

Perhaps it is worth recalling that the Lagos Plan of

Action had failed to provide for an effective monitoring and follow-up mechanism for its implementation and this

may explain why governments did not feel obliged to do

so.

3. The analysis of intra-African trade in the context of the LPA is rather limited in its coverage since only

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E/PCA/TRADE/91/6 Page 2

?.. small number of African countries were able to provide riata anr1 statistical information on sone of the elements of the LPA,

4. Africa's economic and trade performance in the 1980s is predicated on many factors. Factor?, that combined to cause Africa's poor economic performance. Principal amonr* which included drouaM: that hit 34 African countries in the early ano. mid .1980s? the collapse in export commodity prices coupled with the adverse effects of fluctuating exchanae rates of y?.aior currencies and the debt-service burden. These adverse developments contributed enormously to dampening the qrowth potential of intra-African trade. This was in marked contrast to the observed substantial world economir grov/th. Over and above Africa laqcred behind all other reaions. T'7orld trade increased, by 14 per cent in 19RG while AFrica's trade increased by only 7.5 per cent. Thus a decade after the adoption of the Laaos Plan of Action,. Africa's economic position presented a crloomv pictureas the region approached the beginnina of another decadeo Fortuitously and in recognition of this? the Special Session of the Conference of African Ministers of Trade in December 1990, adopted document E/ECA/TRADE/8 9/2 5/Rev.5 entitled

"Strategies for Revitalisationp Recovery and Growth of Africa's Trade in the 1990s and Beyond,"

II. DEVELOPMENT OF PCMSS7IC

5. No meaningful analysis of .intra-Af rican trade and the implementation of the I.PA can be made without an assessment cf LPA1s impact on the domestic trade sector.

Emphasis by the LPA placed on increasing production of

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tf/ECA/TRADE/91/b Paae 3

export nroos -tr.6 the i^rovenent of conditions, for

tratfe expansion ere not inseparable. However, neglect of orodu-i-tion of foor? and consumer qoodc for domestic consumption in preference for export crops in order to earn foreign excbarc-e has re2-lted in lopesided develoonent, <?he tonest-io trade sector, failed to expand because of the narrow production base, the neglect of and inadequate p-toraae and distribution facilities at national level an-i especially in rural sector, and the absence of efficient credit facilities and infrastructure.

£* It is instructive that the report (R/ECA/TRADE/30/10) of a workshop on Promotion of Domestic Trade that the secretariat organised in -^er>i:-:nber 1990, concluded in a_ similar vein about &Or»e of the nejor obstarler, that hanper the development of •?on«st.io trade. They relate mainly to the narrowness of the production base, the concentration of ii^urtrien in the urban areas a^

inadequate distribution facilities oarticularly in the

rural areas?. however, the report acknowledaina that

countries h-ve n^e significant efforts to oromote

tr^-?e bv establishing domestic distribution

For -^^tan-e in the ease of Etbiooi* the

Ethiopian Domeetio and ..Distribution. Corporation (I^DDC)

has established manufacturing and r'ijstribubion centres

to -ater for the domett ir- market for most ePsential

comTnoditief?. Other countries heve con?? trusted cold

storerooms in all ^art? as in the case of Cameroon with

a view to Pnfiuj-inc- food sel.*-suf fioienry. rihat is

difficult to entaMish is whether the^e ^;eos were a

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E/ECA/TRADE/91/6 page 4

direct or indirect result of a desire to implement the LPA?

7, Concern with the need to accord the development of domestic trade needed was again voiced at the tenth meeting of African Ministers of Trade whose report reiterated that in order to promote domestic trade, promulgation of appropriate legislations was essential.

The report stressed the need to ensure adequate supply and distribution of goods as a self regulating mechanism of price control and prevention of excessive profit margins. The meeting also called upon African governments to try to influence domestic trade through a system of economic incentives.

8. In the meantime it is to be noted that some African countries have established or strengthened national institutions to this end. For instance ministries or departments for promoting domestic trade have been established but there has not been much progress because legal and institutional provisions adopted were rather inadequate or over restrictive. Centralized pricing policies rather than inducing greater activity have been less successful because of the resulting high prices for consumer goods or low producer prices. Other equally important constraints requiring attention include rehabilitating the structure of domestic trade so that it does not remain confined to production only of commodities produced under subsistence economic conditions.

Similarly, the need for the governments to improve the

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E/ECA/TRADE/91/6 Page 5

low level of entrepreneurial skills of most traders engaged in domestic trade that renderes them inefficient and ultimately contributing- less through domestic trade to the respective nations' qross domestic product.

III. DEVELOPMENTS IN THE INTRA-AFRICAN TRADE SECTOR

9. The LPA also places emphasis on intra-African trade in its strategy of achieving its objectives. Intra-African trade is viewed to be an important driving force for economic growth and developmnt for Africa on many points.

For instance both as a complement to expanding Africa's export and import activities wuth that of non-African countries and an alternative to lessen the impact of loss of external markets in world in the advent of economic

blocs is on the rise.

10. An analysis of the performance of intra-African trade during the 1930s is not the same as assessing the impact which the LPA has had on these trends. However, the trend shows that the proportion of exports to and imports from Africa as compared to the rest of the world was about 5.8 per cent and 6.0 per cent respectively in 19.8a..~ The Tables 1 and 2 show that trade among African countries as a whole during the period 1983-1989 increased in both volume and value terms recording an annual average rate of growth of 4.8 per cent between 1933 and 1989, despite considerable fluctuations from year to year.

11. It was also characteristic of intra-African trade

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E/ECA/TRADE/91/6 Paae 6

that over 50 per cent of the exports between 1983 and 1989 originated from only a few countries. Principally Algeriag Burkina Faso, Cameroon, Cote d'lvoire, Ghana, Kenya, Mali, Nigeria, Senegal, Togo, Tunisia and Uganda.

The same was also true regarding import destinees as

data in Table 2 clearly indicates.

12. The structure of intra-African commodity for this same period is given in Tables 4 and 5 and did not significantly change throughout the 1980s. However the share of some commodities, particularly manufactured goods rose from 19 per cent in 1980 to 31.5 per cent in 1987. Perhaps this trend could be interpreted to suggest Africa's increased diversification of its industrial base used to supply its own region. The question is to ascertain whether this positive trend was a result of implementing the LPA? In contrast, the share of fuel exports in intra-African trade declined from 41 per cent in 1980 to 29.3 per cent in 1987 implying an increased reliance by Africa for fuel imports from

outside the continent.

(a) Analysis of the situation of intra-African

trade and its trade potential

At a meeting of the Intergovernmental Group of Experts

on Prospects for South-South Trade Promotion in Processed

and Semi-processed Products in Addis Ababa, in October

1990, a number of constraints that had hindered the

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E/ECA/TRADE/91/6 Paqe 7

expansion of intr^-African trade, relating both to policy and market failures as well as the absence of pertinent trade information were identified,

14 o It is evident that apart from so many constraints that have limited intra-African trade that ■ great: -

potential exists in this area, especially were many of the suggestions made in the LPA to be implemented in line with what was stated in the study by the International Trade Centre (ITC) that was presented to the meeting above. The study indicated that out of an identified 550 products and product groups which the Preferential Trade Area for Eastern and Southern African States (PTA) exported to countries outside the PTA, 475 items "matching products" were a3 so imported into the PTA during the same period. The annual PTA import bill for those products which are also exported by PTA member countries amounted to about US$5 billion or approximately 50 per cent of total annual imports„ This illustrative example goes to prove that intrs-PTA trade expansion is quite promising.

However, this potential can only be exploited to the mutual benefit cf the member States provided . that other criteria of comparative advantage can be put in place.

A similar analysis of the Economic Community of West African States (ECOWAS) showed that over ?5G items were available in the subreqion. The combined import value amounted to USS 3 billion or 53 per cent of total annual ECOWAS import trade. The analysis further showed that the same trend as in the Economic Community of Central African States (ECCAS) sub-region exists even though

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E/ECA/TRADE/91/6 Page S

at a somewhat lesser extent.. Thus 3 3 per cent of total ECCAS import trade was available at the sub-region level.

It is this type of evidence that make it difficult to say that the lack of intra-African trade expansion can continue to be blamed on the lack of marketable products.

Rather the main root cause would seem to be a lack of transparency and openess and the absence of pertinent trade information for potential trading partners=

15. A recent study by the secretariat of Sudan's trade relations with some of its eight neighbouring states for the period 1978-1987 showed that the Sudan accounted for about 90 per cent of its trade with countries outside Africa, and only 10 per cent with its eight neighbouring African partners., This is an indication of the general trend of trade of most African countries during the 1980s8 This revelation is necessary if only to show the extent to which the follow-up mechanisms of the LPA may be taking root. Similarly whether the call by the eighth session of the Conference of African Ministers of Trade in 1985 and also the Special Session of the same ministers in December 1990 for 'intra-African trade to be increased by a certain percentage can be attained?

(b) Reduction and elimination of trade barriers

16. Attempts have been made by PTA, ECCAS, UDEAC, ECOWAS, to liberalize trade and minimize trade barriers partly in line with the LPA and directives of their legislative authorities. It is therefore hooed that these efforts

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will be strengthened. Nevertheless,, many African countries continue to face tariff and non-tariff barriers which

according to the LPA, should have been removed by 1990, In the meantime several studies have been undertaken

with the assistance of the secretariat, in addition to advisory missions, seminars and workshop for economic

operators in trade liberalization with a view to expanding

intra-African trade. But as the data indicates, the level of this particular form of trade continues to be

relatively low.

17. One area where there has been some progress in implementing the LPA is in institution-building. The

targets proposed in the Plan have not been wholly met

due to lack of financial support from member States but quite a lot has been achieved. For instance the PTA established in 1981,, seems to be making good progress in the area of promoting intra-African trade with the setting up of a payments and clearing house and by establishing a unit cf account (UAPTA) enabling the use of its own travellers cheques to be bought in local currencies. The PTA has also organized a. number of trade fairs including a specialised Leather Pair in 1990. On the other hand also, the ECOWAS recently embarked ' studies intended to set up a common currency. In addition to

the already existing West African Clearing House.

Countries in the North African sub-region are also in

the process of setting up a preferential trade area.

Other institutions have also been created to promote

intra-African trade. Not least of these is the Federation

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of African Chambers of Commerce,. although the Host Agreement has not been put into effect since it has yet to be ratified by the host country. Another area of trade promotion was the holding of All Africa Trade Fairs

in several countries and the sixth one will be held in

Zimbabwe in 1991.

18. With the establishment and strengthening of these

sub-regional groupings it can be expected that Africa

will have a common market in a not two distant future pursuant to the LPA. The Special Session of the Conference

of African Ministers of Trade which adopted the Strategies

for the 1990s and Beyond, reiterated that intra-African trade was an indispensable strategy for the 1990s towards the establishment of the African Common Market. It therefore called for efforts to this end to be accelerated as a matter of top priority within the framework of the

proposed African Economic Community, especially in view of the fact that the proposed Treaty for the Economic Community has been drawn up by the OAU and will be

presented to the OAU Summit in 1991.

19. There are numerous barriers or hinderances to expanding intra-African trade some of which are already

cited earlier above. However, Africa's weak domestic

trade structure needs repeating because it is responsible

in the poor performance of intra-African trade. Unless

problems hampering domestic trade are eliminated or greatly

minimised, intra-African trade cannot be expected to

go much above its current level. Notwithstanding the

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E/ECA/TRADE/91/&

Page 11

above, the main obstacles tc intra-African trade as listed in the LPA require appropriate remedial action.

IV. CONCLUSIONS AND KECOMMENDATIONS

20« The world economic situation has changed considerably since the 1980s when the LPA was formulated and adopted.

Other events including the recent Gulf crisis and the

hike in oi1 prices, the emergence of many.economic blocs, the worsening international economic environment have all added up to reinforce the wisdom of the need not only to review but also to quicken the pace of implementation of many of the valid strategies of the

Lagos Plan of Actiono

21. The intra-African trade performance will continue

to perform poorly in the 1990s partly due to a lack of

trained manpower to man sub-regional institutions as is the lack of financial resources to make them operate efficiently. The traditional rigid production structures in domestic trade and existing trade barriers among African

countries will also further dampen intra-African trade prospects and must therefore be removed. The proposed

"Strategies for Revitalization, Recovery and Growth of

Africa's Trade in the 1990?; ?.nd Beyond"

<E/ECA/TRADE.89/25/Rev.5) lays emphasis on attaining

levels of sustainable development. The strategies are

designed as a new framework to enable countries to resolve

intra-African trade problems to includes comprehensive

market research and analysis j restructuring domestic

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production in agriculture and industry; intra-African trade liberalization of domestically-produced goods;

establishment of an African Common market and increasing counter-trade exchanges. Emphasis in the strategies is also put on increasing the share of intra-African

trade to between 10 and 15 per cent nf Africa's total

trade• To this end, governments, international organizations and multilateral and bilateral donors are called upon to give high priority in financing the development and expansion of Africa's trade„

22. This brief review is by no means the only one that has addressed the LPA. Mention must also be made of the "ECA/OAU/ADB High Level Meeting of Experts on Africa's

Development in the 1930st A Decennial Review of the Lagos

Plan of Action" that was held in Lagos from 6 to 8 December 1990„ After reviewing thoroughly the performance of

the LPA in all sectors,, that meeting recommended among

other things that, "there was need to review the chapter on Trade and Finance in the LPA." 1/ It was therefore timely that the Strategies dealing with these issues have already been adopted and recommended for implementation by the African governments in the 1990s

and Beyondo In conclusion therefore, African governments

and institutions are urged to show more resolve than hitherto in putting into effect those recommendations.

1/ ECA/OAU/ADB/4/HPT 1990. P. 12 (Unpublished)

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TABLE1EXPORTSOFAFRICAT

TABLE 1 EXPORTS OF AFRICA TO AND FROM THE COUNTRIES LISTED

3E/ECA/TRADE/91/6

'Annex {MillionsofUSdollars) 198319341985 WORLDTOTAL Algeria BurkinaFaso Cameroon Coted.-Ivoire Ghana Kenya Mali Nigeria Senecal Togo Tunisia Uganda Sub-total %Total Allothers

173 133 3b 106 1,146 34.° 2103

1986198719881989

63,696 65,511 64,049 56,619 66,084 67,707 76,910

AFRICA3,3493f242 (GrowthRate)(3,0)

3,286 3,278 3,793 4,070 4,428 Growth Rate 1983-1989 (1.0) (-0.1) (8.6) (7.0) (8.0) 4.8%

89

ill

235 190 li 107 111 9P 1,347 41.? 1895

105 242 202 102 H 156 87 1,476 44.9 1810

144

m

245 144

i2«

98

108 280 247

m

103 1

112

m

301 255 64 112 1,369 41.5 1917

128 87 1,628 42.9 2165

134 162 97 1,806 44.4 2264

124

lift

361 308 160 185 103 2,071 46.8 2357(42%average) SourcesIMF,Directir-tofTradeStatisticsYearbook1990pp.20.

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E/ECA/TRADE/91/6AnnexPageiiTABLE2IMPORTSOFAFRICATOANDFROMTHECOUNTRIESLISTED

INMILIIONSOFUSDOLLARS

1963198419851986198719881989 DOTSWORLDTOTAL64,53060,087

58,594 56,849 61f733 70,785 76,532 Growth Rates 1983-1 AFRICA 37522 3~7^9 J7350 37738 T7984 4,442 4,682 (Growth Rate) (-2.0) (-2.0) (11.0) (6.1) (11.0) (5.0)

4.

AlgeriaBotswanaCameroonCoted'Ivoirf

>we Nigeria

ZimB;

Sub-Total

%ofTotal

Allothers

3ee

59418

lf751

50*0

1771 47587

X39

^1,704^49.4¹⁷⁴⁵ 83487

1,769

52O81581 101575

133

^1,930^52.96¹⁷⁵⁰ 190677

m

^:,074^52.0¹⁹¹⁰

m

296690

2,411

54.27

2031 3162828

m

^2,757^58.88

{52.8%Average)

1925

SourceIMF

direction of Trade Statistics Yearbook 1990. PP. 21

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E/ECA/TRADE/91/6 Annex Pageiii

7A3LE 3 EXPORTS AND IMPORTS OF AFRICA TO AND FROM THE COUNTRIES LISTED EXPORT IMPORT 1933 1981 1985 1986 1967 1988 1989 1983 1934 1935 1986 1987 1980 19fi7

EWTDISTRIBUTION

INDUSTRIAL COUNTRIES 7?.l 72O4 71.6 67.6 66.9 66.3 67.6 73 .0. 73.4 74.4 73 4 72 0 7 w 70 7 M?&pPI^G COOKIES X3.} I3.g lg:$ i§:| lh] 12:fi 12:g lg ^ 1§., 1§ ^ ^ JJ ^-0 7... A>. 7

iWUALPERCENT CHANGE

J0KLD "2«1 3-0 -2.3 -11.5 16,7 2.5 13,6 -13.6 -G. 8 -2-4 -2D9 8O£ L'i 7 S 1 INDUSTRIAL COUNTRIES -1.3 3.4 -3.4 -16.5 15.7 1.4 16.0 -12.2 -6.4- -1.1 -4.3 S 6 13 ? 76 DEVELOPING COUNTRIES -13.0 5.4 6^5 -5.4 13.1 17O5 12O5 -14.4 -3n3:-2.9 -3.4 19ll 18°9 102 AFRTCA "2^9 -3°1 1-4 -0.1 15.7 7.3 8_8 -7.5 -2.0 -2O8 11.6 5O6 11.5 5 4

sourcIMF,DirectionofTraotStatisticsYtarbook-1990(p.24)

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F./ECA/TRADE/91/6

Annex

paqe iv :

TABLE 4

EXPORT STRUCTURE BY DESTINATION AND BY MAJOR COMMODITY GROUPS DEVELOPING AFRICA TOs

COMMODITY GROUPS

YEAR WORLD

MILLIONS OF DOLLARS

ALL PRODUCTS

ALL FOOD ITEMS (SITC 0-1-22-O

AGRICULTURAL RAW MATERIALS

(SITC 2-22-27-2H)

ORES AND METALS (SITC 27*28+68)

FUELS (SITC3

MANUFACTURED GOODS (SITC 5 to 8 less 68)

1970 I960 1987

SHARE (in

1970 19S0 1987 1970 1980 1937

1970 1930 1937 1970 1980

198} I

1970 1980 1987

12021 94942 51821 BY DESTINATION per cent)

100,00 100=00 100=00 100,00 100,00 100,00

100.00 100,00 100,00 100,00 ioa,oo

100L00

100,00 100,00 iooooo 100c00 100,00 100,00

672 2970 3035

5 = 6 3.1 5,9 6.2 7 = 7 9.2

2,5 3.7 So2 0,9 3 = 0 4 = 4 1,9 1 = 7 3,0 38.4 14 = 8 13.9

ALL FOOD ITEMS (SITC 0 1 22 4

SHARE BY MAJOR COMMODITY GROUPS (I?i PER CENT)

1970 1980 1987

29 10 17

,1 ,6 2

32 26 27

,3 oO .1

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TABLE 4 cont'd

COMMODITY GROUPS _YEAR

E/ECA/TRADE/91/6

Annex Page v

WORLD AFRICA

AGRICULTURAL RAW MATEIALS

(SITC 2-22-27-2H)

ORES AND METALS

(SITC 2 28 68)

FUELS (SITC3)

MANUFACTURED GOODS

(SITC 5 to 8 less 68

ALL PRODUCTS ALL FOOD ITEMS

AGRICULTUAL RAW MATERIALS ORES & METALS

FUELS

MANUFACTURED GOODS

1970 1980 1937 1970 1980 1987 1970 1980 1987

10.9 5,1 19.2 5-9 7O2 33 = 7 75O6 56.S

4,9 3.7 5,4 3.0 5.7 5O4 11.5 41.0 29.3

1970 7,0

1980 4.0

1987 13O2 31.5

ANNUAL AVERAGE GROWTH RATES (in per cent) 48.1

19.0

70-87 70-87 70-87 70-87 70-87 70-87

9.0 5,6 4.2 2_9 12 13

9.3 8.1 9.9 13.2 15.5 6.6

Handbook of international Trade and Development Statistics

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E/ECA/TRADE/91/6 Annex

Page vi

TABLE 5 IMPORT STRUCTURE BY ORIGIN AND BY MAJOR COMMODITITY GROUP DEVELOPIN AFRICA

COMMODITY GROUPS

YEAR WORLD AFRICA GROWTH RATES

80-87

ALL PRODUCTS 1970 1980 1987

11836 84359 63377

MILLIONS OF DOLLARS 672

29703035 7*21%

SHARE BY ORIGIN (IN PER CENT)

ALL PRODUCTS

ALL FOOD ITEMS (SITC 0-222-4)

AGRICULTURAL RAW MATERIALS

(SITC 2-22-27-28 ORES AND METALS

(SITC 27^28*68)

FUELS (SITC 3)

MANUFACTURED GOODS

{SITC 5 to 0 Less 68)

1970 1980 1987

1970 1980 )1987

1970 1980 1987 1970 1980 1987

1970 19S0 1987

100 100 100

100 100 100 100 100 100

100 100 100

,00 .00 Ooo

.00 coo .00

Ooo .00 Ooo

.00 ,00 oOO .00 Ooo .00

= 00 .00 .00

5.7 3.5 4.8

12.7 5.0 8.0

11 = 5 6.39,5

11,0 13O3 15.1 13.9 15.6 17.1

3.6 1.0 2.2

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TABLE 5 cont'd

E/ECA/TRADE/91/6

Annex Page vii

COMMODITY GROUPS

YEAR WORLD AFRICA

SHARE BY MAJOR COMMODITY GROUPS (IN PER CENT) ALL FOOD ITEMS

(SITC 0 2-22* 4 1970 1980 1987 AGRICULTURAL RAW

MATERIALS 1970

(SITC 2-22-27-20)1980

1987 ORES AMD METALS

(SITC 27 -28*63) 1970 1980 1987 FUELS (SITC 3)

MANUFACTURED GOODS

{SITC 5 to 8 less 68)

1970 1980 1987

ALL PRODUCTS 70-87 ALL FOOD ITEMS 70-37 Agricultural raw

materials 70-87 ORES AND METALS 70-37

FUELS 70-07

MANUFACTURED

GOODS 70-87

15.8 16.1

1.4 2o0 2O7

1,5 1.5 1 = 7 4O7 9.3 8.1

75.1 69,3 67,9

32O3 26.0 27O1

4.9 3O7 5.4

3.0 5.7 5.4 11.5 41.0 29O3

48O1 19o0 31o5

ANNUAL AVERAGE GROWTH RATES (IN PER CENT) 10.4

11.2 11.1 11.2 14.1 9.8

9O3 8.1 9.9 13.2 15.5

C.6

SOURCE? UNCTAD Handbook of International Trade and Development

Statistics 1989 po 104